Pension News from Around the Web

The government has acknowledged proposals in its long-awaited Green Paper on defined benefit (DB) schemes could leave members £20,000 worse off on average.

n an effort to reduce scheme liabilities, the government is proposing to allow “stressed employers” with DB schemes to change their reference point for indexation – the means by which pensioners are protected from the effects of inflation – from the Retail Price Index (RPI) to the Consumer Price Index (CPI).

The government, which itself switched from RPI to CPI as its preferred measure of inflation for pension purposes in 2010, said various commentators had argued indexation should be cut to reduce the burden on employers – for example, estimates from the The Pensions Regulator suggest moving from RPI to CPI would reduce scheme liabilities by around 5% to 10%.

At the same time, the government conceded estimates from consultant Hymans Robertson show the move from RPI to CPI could leave DB members around £20,000 worse off over an average DB scheme member’s life.

It went on to acknowledge a move to statutory indexation would only exaggerate this loss and have a wider impact on government financing objectives because of its interactions with the gilt market.

The Green Paper observed: “The government does not think the evidence is strong enough to suggest that indexation should be abandoned or reduced across the board. There could however be a case to suspend indexation in cases where the employer is stressed and the scheme is underfunded.

“And there may be a case to rationalise indexation arrangements, as the current arrangement where some schemes are prevented from moving to CPI by scheme rules is something of a lottery.”

‘Remarkably timid’

AJ Bell said the government’s “high-wire balancing” act with indexation could equate to an overall £90bn loss for DB members.

Senior analyst Tom Selby said: “While allowing scheme sponsors to slash liabilities – possibly by switching from RPI to CPI indexation or suspending indexation altogether in certain circumstances – could preserve guaranteed pensions for more people, it would also more than likely reduce the value of these pensions and potentially whip up a storm of protest from trade unions.”

Royal London director of policy Steve Webb was also critical of the paper – attacking its lack of direction and describing the absence of firm proposals from the government as “disappointing”.

“This must be one of the ‘greenest’ Green Papers in living memory,” the ex-pensions minister said. “Despite months of public debate led by the Select Committee and the pensions industry, the government’s own thinking does not seem to have advanced significantly.”

He continued: “Given the years that can elapse between floating ideas in a Green Paper and implementing them on the ground, the lack of firm proposals is disappointing. Even in the area of trying to avoid a repeat of the BHS fiasco, the Green Paper is remarkably timid on the idea of giving the regulator more power to challenge takeovers that could damage a pension scheme.”

The deficits are largely driven by a fall in gilt yields after the UK’s vote to leave the European Union in June 2016, and the Bank of England’s interest rate cut and £70bn quantitative easing programme.

The calculations are based on publicly available data of all UK private sector DB schemes, and use information from the Pension Protection Fund (PPF).

In order to fill the increased gap over a 10-year period, companies will need to pour an estimated extra £10bn into their scheme each year.

PwC global head of pensions Raj Mody said schemes may benefit from not agreeing repair payments tied too closely to prudent deficit assessments.

“Last year, we identified that pension funding deficits are nearly a third of UK gross domestic product (GDP),” her said. “Trying to repair that in too short a time could cause undue strain. In some situations, longer repair periods may make sense.

“This can help reduce cash strain by allowing the passage of more time to see if pension assets outperform relative to the prudent assumptions currently used when trustees calculate financing demands.

“It’s not necessarily sensible to calculate deficits prudently and then try and fund that conservative estimate too quickly. Equally, if all parties can get a realistic deficit assessment, it could well be in everyone’s interest to make that good as soon as possible.”

Mody also called on DB schemes to consider alternate deficit calculations which are not based on gilt yields.

“Gilt yields have long been the foundation of pension deficit measurement and financing, with a belief that calibrating everything to current market expectations was the best version of the truth,” he continued.

“This may have been ‘good enough’ as an approach in more benign market conditions, but it does not necessarily make sense to fix your strategy for the next couple of decades based on the situation at any single point in time.

“Now is the time for pension fund trustees to ask whether the current management information and analytics they receive is fit-for-purpose for all the decisions they need to make.”

The index also showed deficits hit a peak of £710bn in late August 2016, following the vote on the EU and the BoE’s rate cut. Long-term gilt yields fell by 1% in the two-month period, from 2.2% to 1.2%, although they have since risen.

Meanwhile, deficits fell by £10bn in the immediate aftermath of the US presidential election in November, when Donald Trump was elected to the top office in a victory that shocked the world.

Sainsbury’s has seen the shortfall of its defined benefit (DB) scheme increase to £1.1bn by 24 September following a “significant” fall in discount rates.

Announced in the supermarket giant’s results on 9 November, it revealed the deficit on an IAS 19 accounting basis had risen by £674m after tax since the year-end of 12 March 2016.

The group said this was mainly driven by a drop in the discount rate since the year-end from 3.65% to 2.20%.

It comes as the scheme’s March 2015 triennial valuation has been concluded with the trustee and sponsor, with deficit recovery payments to increase by £6m to £84m per annum until March 2021.

The valuation carried out by the scheme’s actuary Willis Towers Watson found the deficit as of 14 March 2015 was £740m, an increase of £148m from the March 2012 valuation.

Sainsbury’s group pension deficit on an IAS 19 accounting basis increased to £1.3bn by 24 September. This figure includes the pension deficit inherited from its recent acquisition of Home Retail Group (HRG). Both schemes are closed to future accrual.

The HRG scheme’s IAS 19 deficit was £249m after tax as at 24 September 2016.

Under a triennial valuation dated 31 March 2015, the scheme had an actuarial deficit of £315m, an increase of £157m from its March 2012 valuation.

Since the most recent valuation, the scheme has received £50m in relation to HRG’s sale of Homebase to Wesfarmers (of which £24m was paid after the acquisition) and £50m from Sainsbury’s. Yearly deficit contributions have been agreed at £40m until October 2021.

Sainsbury’s £1.4bn acquisition of HRG, which is the owner of Argos and Habitat, was completed in September.

Marks and Spencer’s (M&S) decision to close its defined benefit (DB) scheme to future accrual from April 2017 has resulted in a £127m charge.

In half-year results published on 8 November the retail giant said the change in status of members from active to deferred means they will see an annual increase in their pensionable salary.

Under the scheme rules, active members have accrual capped at 1% but deferred members have their benefits linked to the Consumer Price Index (CPI). As all DB members now become deferred, rather than active, the annual increase in their pensionable salary is linked to CPI, rather than being capped at 1%.

With interest rates so low, sterling weakened since the UK’s vote to leave the European Union (EU) and inflation expected rise in the coming years, closing a DB scheme to future accrual is more expensive.

AJ Bell senior analyst Tom Selby said there was a “sting in the tail” for M&S upon closing the scheme. “This just goes to show the huge costs associated with DB pensions, even when a company moves to ditch their responsibilities.”

First Actuarial senior consultant Derek Benstead added: “The increase in liability restores to members part of the value they lost when the cap on pensionable salary was introduced in the first place. Nevertheless members are likely to be worse off, and M&S better off, relative to the position before the pensionable salary cap was introduced.”

The surplus of the DB scheme shrunk on an IAS 19 basis from £824.1m at of 2 April 2016 basis to £571.2m as of 1 October 2016.

M&S explained this is due to the decrease in the discount rate from 3.4% to 2.3% which reflects the reduction in corporate bond yields and the changes to the scheme.

M&S first revealed its plans to close its DB scheme in May and confirmed it would act on the decision in September.

Pension schemes that provide an income based on final salary have long been held out as the gold standard of retirement provision and indeed, if the person lives a very long time – beyond their life expectancy – they will provide a very high total return.

Defined benefit (DB) schemes are, however, also inflexible – simply allowing a person to take an initial tax-free lump sum and then providing a fixed income each year, increasing in line with inflation. Should the scheme fall into default – recent high-profile examples being BHS, British Steel and turkey firm Bernard Matthews – the safety net is the Pension Protection Fund, which results in a cut in pension entitlements and limited protection against inflation.

Since the introduction of pension freedom, there has been a significant increase in the number of people deciding to transfer from DB schemes into a personal pension – and yet the number of people doing so is still very small compared with those actually retiring from the schemes. So why is this number so small when, in reality, more than half the members of such schemes would eventually receive more cash following a transfer than they would by just drawing the DB income?

Take the example of a person whose pension after cash might be £3,600 a year. The transfer value in exchange for this could well amount to £100,000 with today’s high cash equivalent transfer values. If that person died within five years of retirement they would have received less than £20,000 and if they were single, no further sum would be payable.

Indeed, it would actually take 21 years before more cash has been received than the £100,000 offered as the initial transfer value, and the growth earned by investing the transfer cash would make that time period even longer. There may be inheritance tax payable upon death if a transfer is made to a personal pension but, with financial advice, this tax can often be mitigated.

The great advantage offered by transferring DB to defined contribution (DC) is the flexibility it provides when drawing income in retirement. Typically people need more money to spend in the early years of retirement when they remain active. For some, this income is taxed at the higher income tax rate. With control and advice on the amount of income drawn down from say a SIPP platform, tax payable can be planned and reduced.

As people grow older, their need for cash generally reduces but financial planning dictates a lump sum should be planned that can be used to continue providing an income; to cover the two or three years of very high expenditure should residential care is needed; or to be left for the family. In the example above, if investment growth averaged 4% a year and a person drew the same income as they could have taken from the DB scheme there will be an amount of £74,000 left over at age 85.

Three obstacles

Why then are more people not investigating the new options? There are three core obstacles:
* The Financial Conduct Authority (FCA) actively discourages it, which means many advisers avoid the issue.
* The cost of the advice that must be taken for schemes over £30,000 is expensive.
* A lot of people just do not realise these options are available – particularly as many thousands in DB schemes have never thought they need financial advice.

The last of these is probably the key reason, for which much blame lies with the trustees of the pension schemes who generally view transfers unfavourably – even if they are very often in the sponsoring employer’s interest.

Those trustees, of course, might reasonably respond that they have no duty to spell out to retiring members the options available. Yet the FCA has put rules in place for those who run personal pensions to ensure plan-holders are encouraged to shop around and so, if pension freedom is to be applied to everyone equally, surely something similar is needed in the DB world.

Core brands Premier Inn and Costa continued to win market share with total sales growing 8.9% and 10.7% and like for like sales up 2.4% and 2.3% respectively.

Whitbread chief executive Alison Brittain said: “This is another good set of results from Whitbread and we continue to deliver strong growth. Whilst it is early in the second half and there is uncertainty in the UK’s economic outlook, we expect to deliver in line with full year expectations.”

Chairman Richard Baker added: “Whitbread has delivered another good set of results with underlying profit before tax up 5.4%. We are continuing to invest in our brands to maintain our leadership positions, whilst our strong balance sheet and cash flow generation has enabled us to increase the dividend by 4.9% to 29.90p.”

Scaling back final salary pension payouts to savers could be an option to help firms at risk of going bust, an influential industry body has suggested.

‘Flexibility’ over benefits – including reductions in extreme cases – merging smaller final salary schemes and overhauling the regulatory regime are among ideas floated to ease strains on employers and the economy by a taskforce launched by the Pensions and Lifetime Savings Association.

Its report was published as pensions consultant JLT Employee Benefits pushed a separate plan – letting retirees already drawing a guaranteed final salary pension transfer out and take advantage of pension freedoms – which it described as ‘a win-win’ for employers and the Government.

JLT said its idea would be a relatively simple move, which would ease the pension burden on employers while the Government benefited from an increase in taxes from members who exited final salary schemes.

But it was dismissed as ‘ludicrous’ by financial adviser David Smith of Best invest, who said: ‘One thing is for certain, it can’t be to the benefit of all and I know who I would bet on “carrying the can” – the member.’

And the Treasury slapped it down, saying: ‘Protecting consumers is a top priority for the government and these proposals would not deliver the best value for money for pensioners.

The PLSA’s taskforce is exploring ways to address problems facing final salary pensions, which provide a guaranteed income for life in retirement and are typically the most generous available to savers.

But pension fund deficits have soared following years of record low interest rates and rising life expectancy.

And the scandal over the collapse of retailer BHS has prompted MPs to investigate ways to strengthen regulation, especially when a business with big pension liabilities is sold, to prevent more ending up in the hands of lifeboat scheme the Pension Protection Fund.

The PLSA task force said it had identified ‘a number of long-term structural weaknesses’ in the make-up of the final salary pensions sector, including the diversity of size, scale and governance of schemes, the fragmented value chain – in layman’s terms, the lengthy list of middlemen involved in the industry – and the broader legislative and regulatory framework.

It expressed the hope that the ideas aired in its report, such as those outlined below, would prompt further debate.

Flexible benefits: Employers’ ‘best endeavours’ are now a hard-wired promise

On the future of benefits, the report said: ‘The UK has, compared to its OECD counterparts [Organisation for Economic Co-operation and Development, made up of 35 developed countries], chosen to adopt a regulatory approach to benefit design that is inflexible and rigid.

‘Therefore what started for many employers as a benefit offered on a “best endeavours” basis, has now become a hard-wired promise.

‘It has also added significantly to the cost of providing pensions. The introduction of statutory revaluation and indexation [increasing payouts in line with inflation] alone has increased scheme liabilities for a typical defined benefit scheme by around 25-30 per cent.

‘As a consequence, sponsors [employers] in the UK do not have open to them the ‘pressure valves’ available to sponsors of defined benefit schemes in other developed economies.

‘Greater regulatory and benefit flexibility – such as that available to the Pension Protection Fund itself, which unlike pension funds does have the flexibility to reduce compensation in the extreme – may help avoid or address problems and could mean that funding issues could be addressed before failure (of the scheme or sponsor) became inevitable.’

‘Investment management fees and costs in particular place a significant cost burden on pension funds,’ said the report.

It noted that City regulator the Financial Conduct Authority had decided the possibility of flawed competition and poor value in the asset manager market was strong enough to launch a market study, which is due to be published next year.

‘The FCA cited concerns regarding the extent to which asset managers were “not incentivised to search value for money” when commissioning outsourced providers of, for example, research or transfer services, because they are able to pass on the costs to investors (such as pension funds) who are unable to scrutinise the fees charged to them.

‘The Investment Association also noted the risk of conflicts of interest affecting investment consultants, including the fact that they can charge for conducting investment performance reviews; setting or reviewing mandates for asset managers; or managing tendering processes.’

The report went on: ‘This creates a potential incentive to encourage an overly short-term focus, with asset managers being changed and investment performance measured over too short a time period.’

It suggested that some schemes, particularly larger ones, could make savings by reducing their on reliance on industry intermediaries and leaning more on internal expertise and support.

Asked for comment, a spokesperson for the Investment Association, an industry body bankrolled by asset managers, said: ‘Investment managers are an important part of the delivery chain, helping pension schemes to achieve their objectives in a very challenging funding environment, both in terms of markets and greater longevity.’

Overhauling regulation: Some 850 new rules and laws affecting schemes introduced since 1995

‘The tone and the nature of successive governments to pension protection in the UK, while protecting scheme members well on the whole, is, however, largely driven by the imperfections in the current defined benefit system,’ said the report.

‘The UK has a highly fragmented pensions system: almost two-thirds of schemes have fewer than 1,000 members, and many do not have the governance capacity to operate defined benefit provision in today’s challenging environment, which rightly requires high standards of governance and a strong focus on member protection.

‘As a result, there has been a necessary tendency for government and regulators to regulate to the lowest common denominator. The resulting regulatory system is highly prescriptive, with Department for Work and Pensions, the Treasury and HMRC regulations “micro-managing” the actions of trustees, scheme managers and their advisers, often in a way that reflects sub-standard governance arrangements.

‘As a result there is little room for the exercise of trustee, sponsor or adviser discretion. This might be described, therefore, as a “bottom up” approach to regulation. It has also resulted in a significant volume of regulation – 850 new pieces of regulation and legislation affecting DB schemes since 1995 alone. This has added significantly to the costs and complexity of operating schemes.’

The task force said its consultations had uncovered a strong view among those who responded that the increasing cost of pension regulation has been a factor in employer’ decisions to close schemes.’

The PLSA’s taskforce chaiman, Ashok Gupta, said: ‘The findings from our interim report show that, on the whole, defined benefit pension schemes are under severe pressure and without change the likely outcome will be hardship for members or sponsors [employers].

‘There is a clear economic imperative to address the issues identified, for the health of both individuals and the wider economy. It is becoming increasingly apparent that the opportunity to make a meaningful difference is diminishing as the sector matures and the cost of inaction is too significant to ignore.’

Nathan Long, senior pension analyst at Hargreaves Lansdown, said: ‘Defined benefit schemes are critical piece of the retirement jigsaw and must be preserved in their full format.

‘Allowing schemes to water down benefits risks doing irreparable damage to the pension brand, just as auto-enrolment is in the process of building it back up.

‘Consolidating small schemes would have the twin benefits of stripping out costs to the benefit of scheme solvency, whilst potentially freeing up funding for much needed infrastructure projects.

‘Given recent weeks have seen the Government’s cost of borrowing rise, this strategy could prove a useful source of alternative funding. Consolidation must be driven at Government level as few advisors are likely to champion a cause that sees a cut to their revenue.’

Pension Minister Richard Harrington said: ‘I welcome the work that the PLSA is doing to understand the challenges faced by some defined benefit schemes and will be working towards a green paper exploring these issues in the winter.

‘It’s important that people’s hard-earned savings are managed appropriately and I’m keen to work with industry to identify how best to support scheme members and employers.’

A spokesperson for The Pensions Regulator also welcomed the report, saying: ‘It highlights many points we have previously raised such as the advantages of consolidation and the importance of good governance.

‘The PLSA highlight that some schemes and employers find themselves in a difficult position. We believe this to be the minority and the majority of schemes are well positioned to pay members benefits in full. Therefore we would caution against proposals to reduce people’s pensions without a clear evidence base.

‘Going forward we welcome innovative ideas on how the pensions landscape can be improved and lead to better outcomes for scheme members, contributing employers and the Pension Protection Fund.’

Should retirees drawing final salary pensions be allowed to transfer out?

The Government should allow pensioners in final salary schemes to transfer out to relieve the pension burden on employers and raise additional funds for the public purse, according to pension consultant JLT Employee Benefits.

Head of corporate consulting Rob Dales, who was responding to the Government’s axing of plans to let pensioners sell annuities second hand, said: ‘The government’s decision to scrap plans that would allow pensioners to sell their annuities in return for a lump sum will no doubt be disappointing for thousands of pension holders.

‘However as an alternative, the government might look at instead allowing pensioner members in defined benefit pension schemes to transfer out and have access to the same freedoms permitted to other members of these schemes.

‘This would be a relatively simple move that would ease the pension burden on employers, and give them another option for de-risking their pensions schemes.

‘Not only that, but the government would also benefit from an increase in taxes from these members who exit to increase their current income or take a taxed lump sum – which makes this a win-win situation that I think the government would be wise to consider.’

At present, retirees who are already drawing a final salary pension cannot transfer out. However, people who have not yet retired can move savings to defined contribution schemes if they want, although getting financial advice is compulsory if their pot is worth £30,000-plus.

Advice on transfers typically costs £2,000 to £3,000 since it is a complex and specialist area, but experts say you could unwittingly pay a great deal more than that by blindly giving up valuable pension benefits.

There are nevertheless cases where people are in very bad health, are single and have no dependents, where it can be to their advantage to give up a final salary pension.

Tax changes on inheriting pension pots also mean some people now want to get their money out of final salary schemes in order to bequeath it to children.

Best invest director of financial planning David Smith, who advises savers considering such moves, says: ‘We are already seeing a sharp increase in demand from individuals who want to transfer out of defined benefit pension schemes. Our starting point for all such inquiries is that it is not in the individual’s best interests to do so.

‘We then delve deeply into their personal and financial affairs to see if there might be mitigating circumstances for certain individuals to seriously consider transferring out; for the vast majority, there aren’t.

‘To consider now opening this Pandora’s box of allowing members of defined benefit pension schemes with pensions in payment to transfer out – they can’t currently – is nothing short of ludicrous.

‘My main concern is for the members who decide to do this. After all, the allowance of such a facility should surely revolve around the pensioner getting a better deal, not the Government or the pension scheme itself? One thing is for certain, it can’t be to the benefit of all and I know who I would bet on “carrying the can” – the member.’

The Treasury said that JLT’s plan would not deliver the best value for money for pensioners.

Although people in final salary schemes are allowed to take advantage of pension freedoms before retirement if they wish, the Government has always made clear that it believes sticking with them is the best approach for the vast majority of members.

Plans to let retirees sell their pension incomes in return for cash have been scrapped, the government has announced.

The proposals would have allowed as many as five million retirees with annuities to sell them on through a secondary annuity market.

It would have been a lifeline for savers trapped for life in poor-value deals. Some pensioners are getting only a few pounds a week where a lump sum would be much more useful.

Annuities are a product that pays a regular retirement income for life and are bought by workers on retirement with their pension funds.

They have long been criticised for being poor value and producing a meagre income.

However, fears had been raised that it would be difficult for pensioners to get a good deal through a secondary annuity market.

Fees would likely have gnawed away at the value of any payout they received, and many may have found themselves even worse off.

Pension reforms introduced last year mean that savers no longer have to buy one of these products.

They now have much more freedom to spend their retirement funds as they choose, with many opting to take out only as much as they need at any time and keeping the rest invested.

However, those who have already bought an annuity cannot benefit from these new freedoms – this is why a market for secondary annuities had been proposed by the former Chancellor George Osborne.

The backtracking by the Treasury could be seen as a kick in the teeth for the former Chancellor as his proposal is ditched.

It also suggests that the Treasury does not have any qualms about going against proposals made by the former Chancellor, creating greater uncertainty as the new Chancellor Philip Hammond prepares for his first Autumn Statement next month.

The Treasury announced today that after a ‘wide range of discussions’ it found there were not enough firms interested in buying up old annuities to create a competitive market.

The Economic Secretary to the Treasury, Simon Kirby, said: ‘Allowing consumers to sell on their annuity income was always dependent on balancing the creation of an effective market with making sure consumers are properly protected.

‘It has become clear that we cannot guarantee consumers will get good value for money in a market that is likely to be small and limited.

‘Pursuing this policy in these circumstances would put consumers at risk – this is something that I am not prepared to do.’

The Treasury added that ‘for the majority of people keeping their annuity incomes will be their best option’ and estimated that only five per cent of people who currently hold an annuity would take advantage of this reform.’

Paul Green, director of communications at Saga, said: ‘This is a surprising announcement. The initial decision to give people the power to sell their annuity was borne from pension freedoms introduced last year and the desire that all retirees could enjoy them. The cancellation of the secondary annuity market quashes that notion.’

He added: ‘There will be many pensioners who will be sorely disappointed – thousands of people who receive minimal income from annuities they were forced to buy would have benefitted from a way to sell their annuity. Indeed, research carried out by Saga found that 58 per cent of people who wanted to sell their annuity were receiving such a small income they could do nothing meaningful with it. It looks now that there will be no way for them to turn that meagre income back into a lump sum.’

Richard Parkin, Head of Pensions Policy at Fidelity International, added: ‘We welcome this news. While we could understand the thinking behind this, this looked set to be complex with customers struggling to achieve good value and very few people set to see any true benefit.

‘We would urge the Government to focus its attentions on ensuring the success of auto-enrolment and creating a coherent system of incentives to save for retirement.’

One of the major changes since pension freedom is the significantly greater interest in transferring out of final salary pension schemes. Historically, it was usually seen as a no brainer to keep a ‘gold-plated’ benefit.

But that is changing. Three-quarters of advisers qualified to give pension transfer advice say they have seen an increase in requests over the past year to move final salary pensions, with 40% saying the numbers of people enquiring had increased significantly.

A quarter of advisers have seen a similar level of business in the last year, while no advisers report less frequent requests, according to Retirement Advantage research.

This is backed up by Financial Conduct Authority stats showing that the numbers investigating final salary transfers are growing rapidly. This is perhaps being fuelled by greater customer awareness.

Flexibility

One benefit of pension freedom has been to show people that their pension is a valuable asset, which they have some control over, rather than a vehicle that generates an income, over which they have no say.

Customers are attracted by access to funds, flexibility over income and the ability to cascade unused funds down the generations after their death, and this combination may hold greater appeal than a guaranteed lifetime income.

Another driver is that over the past few years, transfer values have been higher than the historical average. How Brexit affects this remains to be seen. As a general rule, lower gilt yields – as we have seen over the past couple of months – usually lead to higher pension transfer values.

However, the current weakness in some markets may impact on the funding levels of schemes, and that could have a negative impact on transfer values.

The uncertainty may also affect the ongoing viability of some schemes and, for those with substantial benefits, any weakness in the sponsoring employer’s ability to support the scheme is worth taking into account.

Despite the obvious attractions that pension freedom offers, many people are likely to be better staying put.

But there are a number of factors which could make a transfer a viable option. The ability to pass unused pension wealth to family is a strong driver for many people, especially when contrasted with the often poor level of death benefits for those who have a final salary benefit with a previous employer.

Similarly, those who are single, widowed or divorced may benefit from the ability to reshape death benefits to suit their individual circumstances, compared to an irrelevant benefit provided by the scheme.

Final salary schemes lack flexibility, so a transfer can allow advisers to help customers control the amount of tax they pay.

Add in the potential for greater amounts of tax-free cash and possible health issues, and there are a range of reasons why a transfer may be worth exploring.

Uncertainty over Brexit

However, Brexit does cause some uncertainty. As the UK exit from the European Union will not happen until 2019, and as the precise outcome is unclear, markets have been (and will be) volatile. We can expect all asset classes to reflect this.

So retaining some element of guaranteed income may be desirable. Some final salary schemes are now willing to offer partial transfers and that is worth exploring where possible. Hopefully, this will increasingly become an available option.

Others may want to use an annuity and drawdown in combination, potentially through a new hybrid solution. A guaranteed income personalised to the customer’s circumstances, and taking into account their health and lifestyle, can be provided by the annuity element.

With an appropriate investment strategy within the drawdown element for the excess funds, there is much more flexibility and control than a final salary income can offer as annuity income not needed can be reinvested into the drawdown element, and lump sums can be withdrawn as needed from the drawdown.

Final salary transfers are increasingly on the radar, largely driven by pension freedom. Although there are risks for advisers and customers, great client outcomes can be delivered in the right circumstances.